Risk Alert Newsletter

Failure of Risk Management process in organizations don’t just happen overnight. Rather it is the culmination of some ‘telltale’ warning signs that have been ignored over time, either deliberately or just ignorantly. Some of these flaws have been found to have contributed significantly to the risk management failures in very large and highly celebrated institutions like Enron (a large U.S energy company), Allfirst (U.S bank subsidiary of Allied Irish Bank (AIB), Sumitomo Corporation (one of Japan’s largest industrial conglomerates), Barings (a British Merchant Bank) and Metallgesellschaft (a large German commodity and financial services firm). These organizations are so large, yet they suffered massive losses due to the following factors (amongst others) characterized as common flaws in risk management:

Some of these flaws relate to the ways in which risk is governed in the institutions as follows:

Executive / senior management does not understand the nature and/or magnitude of the risks it is taking. Its either they are simply uncomfortable with risk, fails to understand the impact of risk on the operations/ business of the organization, or view risk as unimportant or irrelevant.

For instance, some decisions are taken at the MCC (Management Credit Committee) without really weighing the risk implication. Credits are approved in excess of single obligor limit and concentration risk limits are breached with impunity in some banks, especially those whose board and the top management have very huge and uncontrollable risk appetite.

Some top management actually view the cost of risk and control functions as ‘parasitic’ on the earnings of the bank and some actually set deposit targets for staff of these departments so as to make them compensate for the amounts spent on their salaries/overheads.

The results are obvious.......t o be continued tomorrow.

For you to continue to partake in these regular risk alerts, kindly join the Association (by registering and paying the appropriate fee) and be a certified Enterprise Risk Management Professional.

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The Director General / Chief Executive

Association of Enterprise Risk Management Professionals

Tel 07062206653, 08033468451, 07088905252

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Comment:

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Amafa Etupu Olufunmilayo (on 2017-07-04 12:26:44 said)
More risk alerts especially as it relates to a development finance institution.

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AERMP is the foremost professional body for risk management practice in Nigeria.

We are an independent, not-for-profit institute, duly registered and approved by the Federal Government of Nigeria (under the Company and Allied Matters Act 1990) to set professional standards in enterprise risk management practice among the practitioners in all industries and sectors (both private and public).

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